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Solar Opportunity - Business Model Options

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Title: Solar Opportunity - Business Model Options


1
Solar Opportunity - Business Model Options
Infrastructure Government
Santosh Kamath Director, KPMG Advisory Services
Private Limited
2
Agenda
  1. Solar Photovoltaic Technology
  2. Solar Thermal Technology Concentrating Solar
    Power (CSP)

3
Solar Photovoltaic (PV) - Business Model Options
Critical Success Factors
Appliance Manufacturer
  • Product Design
  • Marketing Distribution

Stand-alone
Manufacturer
EPC Player
Developer
Grid
Crystalline Silicon PV
Thin-Film PV
  • Engineering capability
  • Tie-ups with suppliers
  • Managing contracts including PPAs
  • Land Bank
  • Financing
  • Low cost manufacturing
  • Manufacturing Innovations
  • Technology innovation

4
There is currently oversupply in the value chain
but supply dynamics could change based on demand
visibility
Zone of uncertainty
Wafer and cell production could expand to meet
the demand
Wafer, ,Cell and Module capacities have lower
gestation periods and can quickly ramp up
production once there is more visibility on demand
Expect 2 Years With No Profits Morgan Stanley
Analyst
Polysilicon shortage has led to a large addition
of capacity
OVERSUPPLY
Source Needham, Company reports, EPIA, KPMG
analysis
5
Global Competitive Behavior Past Trends (1/2 )
UPSTREAM
DOWNSTREAM
Systems Integration/ Developer
Poly silicon
Wafer
Cell
Module
Key Strategic Initiatives
PV Crystalox ,LDK Solar
Expansion into poly-silicon space
Strategic tie-ups with silicon manufacturers Yingl
i acquires Cyber Power Group Ltd., a solar-grade
poly-silicon production company
Trina Sola, Yingli
Acquire other system integration companies in
different geographies
Sun power
Strategic tie-ups with upstream manufacturers
Conergy, Solon, Centro solar
Canadian Solar
Expansion into wafer segment
A vertically integrated presence to capture
profits across value chain
6
Global Competitive Behavior Recent Trends (2/2 )
UPSTREAM
DOWNSTREAM
Systems Integration/ Developer
Poly silicon
Wafer
Cell
Module
Key Strategic Initiatives
REC Solar, SolarWorld
Downstream move Equity Stake in solar farm
developer
Stake through subsidiaries in thin-film
technology firms JV Partnership with LDK to
develop PV systems in Europe and China
Q cells
Solarfun, Suntech, Evergreen solar, JA Solar
JV to develop solar farms Suntech Acquires MSK
and EI Solutions System Integrators
Thin-film Module
First Solar, Ascent Solar ,Energy Conversion
Devices
First solar acquires solar power project pipeline
n USA
Strategic land rights of approximately 136,000
acres (approximately 210 square miles) with the
potential to deploy up to 19 gigawatts
An increased focus on market access
7
CSFs for Business Model Crystalline PV
Manufacturing
Wafer
Cell
Module
Poly silicon
Ability to procure solar silicon Ability to reduce energy costs Ability to reduce silicon consumption Ability to produce high quality thinner wafers Ability to increase cell conversion efficiency Access to cheap and skilled labor Ability to secure module supply contracts
Capital Energy
Technology
Labour
  • Ability to secure low cost and good quality
    inputs ( Poly-silicon, Wafer, Cell)
  • Ability to get market access Increase capacity
    utilization

. Advancement in wafer and cell technologies are
considered to be the key drivers in the overall
cost reduction possibilities for crystalline PV
8
CSFs for Business Model Thin Film Manufacturing
A-Si CdTe CIGS
Many established players like Sharp, Q cells and Schott Solar have diversified into A-Si First solar is the largest thin-film manufacturer in the world Some industry players have exited this space New entrants and start-ups are focused
Efficiency degradation Lower conversion efficiency Feedstock limitation -Availability of telluride Cadmium is carcinogenic CIGS is limited by availability of Indium , a rare earth metal that could cause supply bottleneck
Ability to manage technology vendors for up-gradation and quality assurance. Ability to partner with existing CdTe players like First Solar Ability to drive technology innovation Ability to invest risk money
Players
Concern
CSF
CIGS Copper Indium Gallium Selenide CdTe
Cadmium Telluride A-Si Amorphous Silicon
9
Build-up of scaleAcross the value chain, the
median capacity of the industry has been going
up, which is most significant in the case of
Wafers and Cells
Crystalline
Thin film
The bars correspond to actual/planned capacity
additions by year
Expected economies of scale in thin film is
likely to see capacity scale-ups
10
Players in Thin-film - CIGS technology is
supported by new start-ups with strong venture
capital funding
Solar Thin-film Industry Profile
Production gt 25MW
First Solar
Mitsubishi
Uni-solar
Kaneka
Production gt 5MW
Sanyo
Honda
Sharp
Schott
Solyndra
Wurth Solar
ersol
Development Status
Sontor
Pilot Production
Nanosolar
Terrasolar
NexPower
Free Energy
Miasole
CSG
Heliovolt
Solon
Kenmos
Plant Construction / Ramp up
Calyxo
Signet
Malibu
Scheuten
Avancis
RD
PV Flex
Johanna
CIS Solartechnik
2006 or earlier
2007
2008
2009
2010
Year of Market Entry (Expected)
Source KPMG Analysis, EuPD Research 2008
11
Industry clustersCapacity expansions along the
value chain are clustered around certain key
geographies
Cell
Wafer
USA, Japan and Germany are hot-beds of thin film
technology, while China and Taiwan are growing
manufacturing bases for crystalline wafer and cell
USAs capabilities in research make it a
significant thin film player
China is gearing up to be a major cell and wafer
player
a-Si
Cd-Te
12
CSFs for Business Model Project Developer
Solar Farm
Roof Top
  • Ability to get access to customers
  • Marketing and customer relationships
  • Manage customer service and performance. Supply
    chain to manage multiple/retail customers
  • Ability to sign a PPA with govt /utility
  • Ability to secure low cost and high quality
    equipments
  • Developing land banks and managing grid
    interconnections

CSF
PPA with customers
PPA with utility
  • Key challenges -
  • Risk of default from customers
  • Dealing with utility / electricity metering
    measurement, grid connections etc.
  • Permits and clearances
  • OM of equipment at customer premises

13
CSFs for Business Model Standalone Applications
VALUE CHAIN
Equipment Supply
System Solution Design
Distribution Installation
Maintenance Service
  • Source Equipments - Tie-ups with Manufacturers
  • Secure supply of good quality and low cost
    modules
  • Procure balance of system components battery,
    inverter, cables, electrical components from
    vendors
  • System assembly and installation
  • Adhere to standards specifications
  • Install and connect the system through meters and
    other equipments
  • Provide quick and high quality service at
    customer end
  • Local infrastructure in-place to respond to
    breakdowns or any other problems
  • Design and develop solar solutions
  • Customize solutions
  • Configuration - Stand-alone systems grid
    connection etc
  • Appropriate Size and Orientation

Description
  • Cost competitiveness
  • Product design
  • Assure high reliability and performance
  • Good quality service

CSF
14
To Summarise for PV
  • Business Model Options Include
  • Wafer Cell Manufacturing Scale, Government
    incentives and ability to innovate in
    manufacturing processes and access to cell
    technology are key drivers. Strategic tie-ups for
    supply contracts are also key differentiators.
  • Modules Likely to be low margin game. Could be
    a potential entry point for a new entrant. Can
    also be part of integrated play with cells and
    wafers.
  • Polysilicon Ability to source cheap energy and
    negotiate Government incentives will be key
    drivers
  • Thin-Film Access to technology will be the key
    factor
  • Standalone Systems Product design and marketing
    will be key capability requirements. Potential
    could be large.

15
Agenda
  1. Solar Photovoltaic Technology
  2. Solar Thermal Technology Concentrating Solar
    Power (CSP)

16
Solar thermal technologies - Brief Snapshot
Key Parameters Parabolic Trough (Most commercially proven technology) Central Receiver Systems (Prototype, Semi Commercial ) Parabolic Dish (Prototype testing)
Key Advantages High system reliability Low materials demand Proven hybrid concept Storage capability Best land use factor High temperature (around 500-800C) High efficiency possible Hybrid operations possible Potential for low capex High efficiency Modularity
Disadvantages Low operating temperatures (around 400C) Land needs to be graded level High maintenance and equipment costs Reliability concerns Highly complex No storage possible
Applications Grid connected plants, mid-to-high process heat Grid connected plants, high temperature process heat Stand alone, small off-grid power systems or clustered to larger grid connected dish-parks
17
Solar Thermal Technologies Value Chain
Operations
EPC
Project Development
Key Industry Themes
Engineering
RD
Technology
Manufacturing
Land
Permits
Financing
Construction
Schott Solar , Rioglass, Flabeg
Epuron
  • Market Access
  • PPAs with utilities
  • Strategic Alliances
  • Amongst Technology, EPC, Financing players.

Solargenix Energy LLC
Ausra, Solel, Skyfuel
  • Diversification strategy in solar (Renewable
    portfolio, Solar Portfolio)

Iberdrola, ENEL, Energias de Portugal, FPL
  • Vertical integration- Presence across the entire
    value chain

Solar Millennium AG, Abengoa S.A, BrightSource
Energy, Acciona Energia
18
CSP - Business model options
Technology Supplier/ Manufacturer
Developer
Turn key EPC Provider
v
v
v
v v v
Niche or Integrated Presence
  • Market Access PPA with utility
  • Efficient power plant operations
  • Land Selection Build land bank
  • Technology RD Innovation Drive costs towards
    grid parity
  • Low cost manufacturing
  • Core Component Access License or partnerships
    for components like - Heliostats, Absorber
    tubes, Curved mirrors and receivers etc
  • EPC Project Management and Construction
    Capability

19
  • Thank You

Santosh Kamath Director KPMG Advisory Services
Private Limited 91 99670 16369 skamath_at_kpmg.com
18
20
  • APPENDIX

21
Solar power offers immense potential as a clean
alternative to meet the growing grid and off-grid
energy requirements of the country
  • Grid Power -
  • Indias energy shortage is about 10
  • Peak deficit about 17
  • Government announced the National Solar Mission
    - which envisages capacity addition goal of
    1000 MW of solar power per year
  • Potential in Remote Villages -
  • 33 of Indias population has no access to grid
    electricity
  • Replace kerosene lighting consumption per
    household 50 to 70 liters per year
  • Solar Lamps could be used for lighting load
  • Commercial Applications -
  • Replace diesel generators in stand-alone systems
    like telecom towers, oil gas platforms, railway
    communications etc

Solar power can be used to meet energy
requirements for centralized as well as
decentralized applications as solar systems can
be built for capacities varying from Wp to MWp
CERC
22
Government has taken several investor friendly
initiatives to promote solar power development in
India
Incentives for solar power generation in India
 Governments Tariff for PV Tariff for Solar Thermal
West Bengal Rs 11 per kwh Not Declared
Haryana (12 MW) Rs 15.96 per kwh Not Declared
Tamil Nadu (50 MW) Rs 15.15 per Kwh Not Declared
Rajasthan (50 MW Cap) Rs 15.78 per kwh Rs 13.78 per kwh
GUJARAT (500MW) Projects commissioned before 31-12-2010 Rs 13/kwh for 12 years Rs 3/Kwh from 13th to 25th year Other projects commissioned before 31-03-2014 Rs 12/kwh for 12 years Rs 3/Kwh from 13th to 25th year Projects commissioned before 31-12-2010 Rs 10/kwh for 12 year Rs 3/Kwh from 13th to 25th year Other projects commissioned before 31-03-2014 Rs 9/kwh for 12 year Rs 3/Kwh from 13th to 25th years
MNRE ( 50MW Cap) Generation-based subsidy up to Rs. 12/kWh for 10 years so that the maximum tariff a project may receive after state support is Rs. 15/kWh ( 5 digression starting 2010 Rs. 11.40/kWh ) Generation-based subsidy up to Rs. 12/kWh for 10 years so that the maximum tariff a project may receive after state support is Rs. 15/kWh ( 5 digression starting 2010 Rs. 11.40/kWh )
Other fiscal benefits include- Accelerated Depreciation 80 in the first year Excise duty cuts and Tax holiday Other fiscal benefits include- Accelerated Depreciation 80 in the first year Excise duty cuts and Tax holiday Other fiscal benefits include- Accelerated Depreciation 80 in the first year Excise duty cuts and Tax holiday
  • Along with incentives for power generation, there
    are favorable incentives for setting up
    manufacturing facility in India.
  • Semiconductor policy - Government will bear 20
    of Capex during the first 10 years, if a unit is
    located within Special Economic Zones (SEZs) and
    25 for industries not located in an SEZ. Capital
    subsidy can be in the form of investment grant
    and interest subsidy

23
A portfolio of technologies at different levels
of maturity and outlook are available for
consideration..
Established Efficiency Improvements
Solar Power
Nascent - Innovation Stage
Solar Thermal Technologies (CSP)
Amorphous Silicon
CdTe (Proprietary Technology)
Parabolic Trough
Dish Sterling
Power Tower
CIGS
Module
System Assembly / Integration
Poly-Silicon
Wafer
Cell
Key challenge - Outlook on grid parity for
different solar technologies
24
Detailed Approach Real Options Evaluation
Framework
Option 1 Start as an EPC Player, License
Technology as soon as industry growth is visible
ILLUSTRATION
Year 4
Year 0
Year 1
Year 2
Year 3
Year 5
Slow growth pattern of the Industry
EPC Player, Tech agnostic
Modest Returns
EP 20
EP -10
P 50
Rapid Growth commences in Year 4
Specific Technology
EP -100
EP 500
Right Bet
P 70
P 30
EP 500
EP -200
P 30
Wrong Bet (Switching Costs)
Rapid Growth
EP 700
Multiple Technologies
EP -200
P 70
All Win
EP 600
P 30
Some Win
Option 2 Take Technology Position Now (Acquire,
JV, In-house)
P 70
EP -50
EP 700
One Technology
Rapid Growth
EP 1000
Multiple Technology
P 30
EP -100
Expected payoffs and probability of the event
shall be estimated by studying past trends in
similar technology oriented industries.
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